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Important lessons for directors in SG case

A court case involving a former director who sought to reinstate a deregistered company to offset amounts owing under a director penalty notice has important ramifications for super guarantee, says an industry lawyer.

After a resolution to wind up the company was passed in December 2015, the ATO issued notices of assessment to the company for amounts claimed to be owing by way of superannuation guarantee charge in 2013 and 2014. Further notices of assessment were issued to the company in February 2017 covering periods of time in 2012.

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In September 2017, the ATO issued Director Penalty Notices (DPNs) to Mr Bailey. The effect of those notices was to charge Mr Bailey with the superannuation guarantee charge liabilities of the company for the relevant periods.

Subsequently, proceedings were commenced in the District Court against Mr Bailey seeking to recover the amounts in the subject of the DPNs. The amount claimed is approximately $237,000.

Mr Bailey claimed that most of this money has been paid. According to him, the company made remittances of approximately $190,000 covering the relevant periods of time to the superannuation fund or funds which covered its employees.

According to the judgement, these remittances were made late, after the time they should have been made pursuant to the legislation which imposes the superannuation guarantee surcharge, but it appeared that if the payments had been made, they would reduce the assessments issued to the company and Mr Bailey’s liability under the DPNs.

In January 2018, Mr Bailey arranged for the former accountant of the company to submit to a superannuation guarantee late payment offset election form in the name of the company. The forms stated that payments for the relevant period were made and that the payments should offset the superannuation guarantee charge liability.

In response, in March this year, the ATO stated that the forms were ineffective to give rise to an offset against superannuation guarantee charge for the period. The reason given was that the forms were received in January 2018, after the company had been deregistered.

Commenting on the case, DBA Lawyers director Daniel Butler said the ATO then raised the defence that because the company had legally ceased to exist, it was not possible for any offset to be claimed.

Mr Bailey then made an application to reinstate the company’s legal existence to resolve this issue.

His application was successful, with the Supreme Court of NSW determining that the company should be reinstated.

“Mr Bailey was effectively going to be left holding the can for the money without any offset, and the only way he could get the offset in order to reduce his liabilities from $237,000 to the $47,000 was to get the company reinstated, so he then sought to get the company reinstated because that would then overcome the technical point raised by the ATO,” Mr Butler explained.

Mr Butler said the case shows that, at times, it may be worth getting a company reinstated for the purposes of super guarantee.

“When you are appointed as director and the company has been sunk, and the company has not paid PAYG or its SG liabilities, you become personally liable, and this is the way that the ATO can effectively have a go at the directors for sinking the company, so this case is very important from that perspective,” Mr Butler explained.

“So, it’s a timely reminder that directors have a lot of responsibility, and if the company does go down, don’t think you’re off the hook for SG or pay as you go.”

The proposed legislation will provide the ATO with new enforcement powers to make a direction for SG to be rectified within 21 days.

“There’s going to be heavier penalties, there’s going to be jail sentences for more aggressive people who try to avoid their SG,” the director said.

Some business owners may also not be aware of the ability to lodge a super guarantee late payment offset election form to reduce their SG shortfall liability.

“Mr Bailey had contributed money in this case to his employees, albeit late, and he wanted to get a credit for his super guarantee shortfall liability. It’s important to be aware of that,” Mr Butler said.